Little-Known Statute Having Big Effect On Way Regulations Proposed

WASHINGTON-A statute long relegated to the environmental regulatory landscape is transforming the way consumer financial regulations are implemented.

For years, the Small Business Regulatory Enforcement Fairness Act had applied only to the Environmental Protection Agency and, more recently, to the Occupational Safety and Health Administration, or OSHA.

The Dodd-Frank Act extended the law to the Consumer Financial Protection Bureau, requiring for the first time that a financial regulator meet with small institutions before proposing any rule that would significantly impact them.

"It's a revolutionary way, certainly in this space, for regulations to be developed," Richard Eckman, a consumer financial lawyer with the law firm Pepper Hamilton, told American Banker, an affiliate of Credit Union Journal. "The main attraction and the reason SBREFA is special is it gives the small business a unique opportunity to interact with an agency at an early stage of its thinking and help shape the rule."

"So by the time it's proposed, it already has embedded in it the best input the agency can get in how to tailor the rule to minimize the impact on small business."

Still, the process remains a bit of a mystery to many in the financial industry who are waiting to see the extent to which SBREFA influences the fledgling agency's rules. Some industry observers have raised concerns that CFPB is rushing the process to meet deadlines, while consumer advocates say the bureau's critics are trying to drag out the implementation of important rules.

"It's fairly clear that the financial interests behind these complaints don't support CFPB's efforts to put strong consumer protection rules on the books," said Travis Plunkett, legislative director for the Consumer Federation of America. "So in a situation like that, the goal is delay, delay, delay."

Under the SBREFA statute, CFPB must convene a panel with representatives from the SBA's chief counsel for advocacy and the OMB's Office of Information and Regulatory Affairs when it believes a rule will have a significant impact on small businesses.

Both CUNA and NAFCU have also had frequent meetings with the CFPB.

How The Process Works

The three agencies select about 15 to 20 small businesses-mostly banks and financial services providers-representing the industries that might be impacted. The bureau provides an outline of the proposal it is considering, and a list of questions it is specifically interested in addressing with the participants.

The group is invited to meet with the panel in Washington, and each is allowed to bring a lawyer or advocate from a trade association, although that person is not allowed to speak during the meeting.

The agency has held three such meetings-lasting about eight hours each-with three different groups of small businesses: one on a proposal to merge the disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act, one on mortgage servicing rules, and one on mortgage loan originator compensation.

The meetings are conducted largely in Q&A format, with questions hewing closely to the topics outlined in the advance materials. After each meeting, the panel-including representatives from CFPB, SBA and OMB-has 60 days to prepare a report outlining the feedback received. Participants also have up to 10 days to submit additional comments.

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